Recovery.gov: the First Step Toward Smart Regulation?

The Obama Administration created Recovery.gov as a critical stimulus component, taking a "don't trust us, track us" approach to assure funds are distributed quickly and fairly and "recipients and uses of all recovery funds are transparent." It will also provide clues about how serious the Administration is about campaign promises to use the Web to transform government.

Recovery.gov could be an additional reporting burden for local government agencies and companies. Or, it could be a critical step toward the "smart regulation" critics call for since the current regulatory system failed to prevent the economic collapse.

The Netherlands offers a model for the latter that could be easily adapted to US needs.

If eventually adopted not just by Recovery.gov but agencies in general, such an approach could dramatically reduce companies and local governments' reporting burdens; improve regulatory oversight by giving agencies simultaneous, real-time access to the same data; and, as a bonus, help improve organizations' efficiency.

The Dutch Taxonomy Project grew out of a promise to cut red tape. The voluntary program lets companies scrap traditional forms they had to file with numerous agencies, banks, and other bodies -- typically 30 or 40 -- and instead submit a single comprehensive data file which every agency can simultaneously access.

The data are what are referred to as "structured." That is, each is bracketed by "tags" -- defined by international standards groups (so they'd be equally applicable here) -- describing the data (typically, the ones applying to business, under a system of tags referred to as XBRL, are standard terms such as "net profit" or "assets."

Agencies configure their software to automatically access the relevant data. If the government chose, data could be reported on a data-in, data-out real-time basis (standard quarterly reports are remnants of an era when it took months to accumulate data and write the report. Technologically, there's no reason reporting couldn't be on a real-time basis, which might well be important given fast-changing current conditions).

In fact, the remaining data are more valuable to regulators because multiple agencies can now share the data simultaneously, allowing for scrutiny that might well have avoided the current debacle. In fact, Bryant University Professor Saeed Roohani said that if the Dutch approach had been in effect here, it might have avoided the crisis: "there would have been little room for mystery about types of portfolios and derived financial instruments.. Alarms would have been sounded long before reaching a crisis, and the government and stockholders could have taken preventive action."

The Dutch government estimates businesses could cut government red tape by 25%, or $515 million a year, in compliance costs with the Taxonomy Project. Imagine what the savings could be in the much larger US economy!

There's still another benefit of moving to XBRL: a company or government agency tagging data for reporting can easily also give its employees access to it. For many, this would be the first time the entire workforce has real-time access to valuable, actionable information. That could dramatically improve efficiency, improve response to fast-changing conditions, and encourage collaborative problem solving.

Recovery.gov could just add a new burden for participants. Or, if it becomes the core of an ambitious "smart regulation" switch, it could cut corporate costs, improve governmental efficiency, and produce the kind of transparency the stimulus program demands.